Abstract
Nonlinear Black-Scholes models for worst-case scenarios require two kinds of algorithmic techniques:
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1.
Finite difference methods combined with dynamic programming are used to solve individual PDEs of type (4.9).
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2.
A collection of PDEs needs to be solved in the right order if exotic options with barrier or American features are involved. Solutions of subordinate PDEs serve as boundary data for PDEs higher up in the hierarchy. (There is only one PDE if the portfolio under consideration contains only vanilla options.)
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© 2002 Springer-Verlag Berlin Heidelberg
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Buff, R. (2002). A Lattice Framework. In: Uncertain Volatility Models — Theory and Application. Springer Finance. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-56323-2_5
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DOI: https://doi.org/10.1007/978-3-642-56323-2_5
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-540-42657-8
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